Owen B

ECRI vs. Roubini, Round Two

John,

I read ECRI's book, Beating the Business Cycle, and I think you misunderstand how to read the WLI.

You say, "ECRI’s WLI peaked on Oct 5, 2007, four days before SPX’s peak close of 1565 on Oct 9. WLI’s AGR turned negative on Aug 31, 2007, shortly after the financial crisis became obvious to everyone that month, and peaked earlier first on May 18 and twice more at the same level, the last being on June 8."

Their work is not technical analysis, where you can pick out multiple peaks this way. In order for you to claim there was an Oct. 05, 2007 peak, you'd also have to say there's a August 24, 2007 trough. But the WLI edged up less than two points between those dates, after falling almost five points since June 8, 2007. My understanding is that because there was no pronounced upswing, the slight uptick is noise, and not a new cyclical upturn. All this is to say that the peak in the WLI occurred on June 8, 2007, which happens to be six months before the recession began.

OB

ECRI vs. Roubini, Round Two

Just because you don't understand the ECRI's approach you call them "father's of the church." Pretty funny on all sorts of levels. I've got one for you -- "ignorance is bliss."


On Jul 26 03:39 PM whidbey wrote:

> Your use of the derivatives of the WLI is rather pathetic analytically.
> This is using a very short run indicator on which to forecast a vastly
> more complex event, the recovery. Being positive on the short run
> based a few indicators is a long ways from becoming positive on the
> whole of the economy (their research record notwithstanding).
> One of the more important reservations on ECRI's call is their refusal
> to recognize the limitations on the WLI series as a leading indicator
> in the situation we are now confronting.
>
> For example, the expected level of public debt (growing) and the
> growth in taxes planned from health care and the end of the Bush
> taxes is really not captured in their model. To suggest that consumer
> behavior, however robust in the short run, will not be sustained
> and may decline again soon is only reasonable so be warned. I fear
> they have been hooked in classifying this recession as the garden
> variety and therefore subject to their historical cycles research
> methods. Clearly there are more moving parts this time that historically.
> Be warned.
>
> As for Roubini, his methods are mysterious and may contain a good
> deal of mojo that is not readily explained, but has recently been
> tied to asset values and consumer spending. That being so he is
> obviously the faster horse in the race you have concocted, except
> no one trusts either of your forecasters.
>
> Personally, I am more likely to follow the professor since he is
> more enjoyable to watch; I wish his speech was more conventional.
> On the other hand, ECRI is both expensive and lacks transparency
> - probably former fathers of the church or something. Forecasting
> is not a science that works as well as doubting the outcomes.

ECRI vs. Roubini, Round Two

Here's ECRI's detailed discussion on their recession call. It's worth a read, including the linkback to their January 2008 piece.

kirklindstrom.blogspot...

Beating on the Federal Reserve

Agree with your "show me" attitude, so what do you make of the ECRI's weekly coincident index rising. July shows still negative growth, but right direction?

ECRI vs. Roubini, Round Two

Good article that I generally agree with regarding Roubini and the ECRI. A couple of items I'd like you to consider:

1. By the time of the IMF seminar in 2006, Roubini had been forecasting recession for quite a while (years) but changing his reasoning. He did get it right with the housing bubble critic in 2006, but he totally missed the re acceleration in GDP growth in the middle of 2007, which ECRI caught spot on. A couple of other things about Roubini bug me -- he kept his retirement money fully invested in stocks even though he had a very bearish outlook, and when asked about how he comes up with his forecasts he quipped that he pulled them out of his nose. Unsettling.

2. ECRI called recession's end earlier than you say. Looking at ECRI's media page I see them calling end of recession (in public) in late April, not on May 8.

CBS: www.businesscycle.com/.../
CNBC: www.businesscycle.com/.../
Reuters: www.businesscycle.com/.../

This Rally Is Sustainable: Halftime Report, Part 2

> Owen B: I did not mean to imply that the leading economic indicators
> from different organizations all turned upward at the same time.
> It seems that is irrelevant, as all of them are positive now, which
> was my point.

Understood, but my point, which I should have made clearer, is that your conclusion -- that the rally is sustainable -- may have been evident earlier than now. People do have different risk profiles, but as I watch the ECRI data on turning points, their argument for a summer recovery is essentially the same as it was three months ago. Now, I'll readily admit, trading on that view since April has not been straight forward. Perhaps that is because many have been waiting for more evidence that the recession is ending.

This Rally Is Sustainable: Halftime Report, Part 2

Bullet points two and three talk about leading indexes as if they all turned up at the same time. Couldn't be farther from what happened in real-time. ECRI Weekly Leading was advancing by early this year, and they made a summer recovery call by April. Last I checked it's now July and the Conference Board is joining in?

ECRI: Strong Signal Recession Will End this Summer

Isn't it "sloppy" to assert that which is not true. ECRI did warn of recession beforehand (in real-time the WLI peaked six months before the recession started). Furthermore, I've never seen them say they use models. They use leading indexes. It seems you don't know what you're talking about. Alternatively, you have some other agenda.


On Jun 19 01:08 PM John Ryskamp wrote:

> Hey Steve,
>
> Don't you realize ECRI is based on phony data? Do you know that
> ECRI completely failed to call this recession? Look at some of their
> postings in 2006. This organization is intellectually sloppy. They're
> like the Conference Board. They relying on bad models and in addition
> take no account of the Federal Government's phonying the data. Why
> even bother reporting what a corrupt organization like ECRI has to
> say?

Perhaps There Are Unseen Green Shoots

Found a list of quotes from their calls vs. forecasts of others (consensus?) through 2007 on their site:

www.businesscycle.com/.../


On Jul 20 10:34 AM TeresaE wrote:

> So, what were they forecasting in '05, '06, '07 and '08 right up
> to September?
>
> Don't remember reading much (anything) about the upcoming problems,
> yet here we are.
>
> I could be wrong, and if I am, please point me to their forecasts
> from those years so I can see for myself.

Perhaps There Are Unseen Green Shoots

I've followed ECRI ever since The Economist magazine highlighted their performance in calling the 2001 recession when most others missed it completely. Below are two recent comments from Lakshman in a discussion thread on the bigpicture blog that relate in part to the issue of "if we were in a 1929-33 type downturn how would ECRI indexes fair?"

# lakshman Says:
July 17th, 2009 at 6:31 pm

mark Says:
July 17th, 2009 at 8:53 am
Just another recession? Same as it ever was? Maybe.
Let’s assume for the moment that ECRI is right. (And by the way, only an economist could call 1929 - 1933 a “recession”.) In any case, what we want to know, what we need to know, is what does that mean for stock prices? The last recession ended in 4Q ‘01 but stock prices didn’t bottom for another year.
So what say you Lakshman?

Hi Mark,

Thanks for your question about the U.S. Long Leading Index (USLLI) after the last recovery began.

After correctly navigating the 2001 recession in real-time, USLLI growth peaked in January of 2002 and did not bottom again until March of 2003.

By the way, I’m not an economist (and ECRI doesn’t use econometric models for forecasting the cycle) but I do know something about business cycles. Every depression consists of one or more very deep recessions. You can see for yourself on the NBER website here: www.nber.org/cycles/

Kind regards,
Lakshman

# lakshman Says:
July 17th, 2009 at 6:42 pm

David Merkel Says:
July 17th, 2009 at 12:52 pm
Lakshman, I give ECRI the benefit of the doubt regarding this because of your great track record. What would help me (and possibly many others) would be if you would point out what components of your underlying indexes are showing strength at present.

Hi David,

I appreciate your question, but the components of our indexes are proprietary. Nevertheless, the key reason our leading indexes work is not because of some special component(s) that we have, but rather because of what they illustrate when the three P’s are observed.

In this case we’re seeing a pronounced, persistent and, perhaps to your point, a quite pervasive rise in the number of components contributing to the rise. For example, in the Long Leading Index it’s not just easy money that is driving it up, and in the shorter leading indexes it’s not simply the stock market, or ISM (which in fact isn’t included).

I hope this helps to address some of your concerns.

Kind regards,
Lakshman

Perhaps There Are Unseen Green Shoots

Thanks for the update. It seems like lots of data that has a short lead or lag is mixed, while the ERCI indexes are clearly up, and Roubini is tangled in fancy footwork as to if he sees a recovery or not. I don't know which way to lean on inflation/deflation.

Why the Recession Is Over

careful what you wish for -- here's a powerpoint file from an ECRI presentation at the Levy Institute showing the indexes in the 1930s. Even in the 1930s they held up well.

www.levy.org/pubs/conf...

audio also on the site, but at separate link. acuthan sounds rushed, but consider the time/environment


On Jul 07 05:01 PM Neil459 wrote:

> From the article, "The Weekly Leading Indicator index (seekingalpha.com/symbo...)
> of the Economic Cycle Research Institute has been very accurate:"
> about a chart that goes back to June 08 or Jan 06. Wow, thats a
> lot of history to consider!
>
> Wonder how this analysis holds up for 1930?

ECRI: Weekly Leading Index at 18 Month High

here's link to that statement (on Fox) www.businesscycle.com/.../

ECRI: Weekly Leading Index at 18 Month High

heard the ECRI guy talking today and he said something like, "if rising interest rates and oil prices could derail a recovery, then we'd always be in recession." good point!

ECRI: Economic Growth Outlook Brighter

as Mitchell quotes A. C. Pigou writing in 1920, “The error of optimism dies in the crisis but in dying it ‘gives birth to an error of pessimism.
This new error is born, not an infant, but a giant; for (the) boom has necessarily been a period of strong emotional excitement, and an excited man passes from one form of excitement to another more rapidly than he passes to quiescence.’”